Sprott silver predictions calling for uncharted gold-silver ratio

Sprott Asset Management’s chief investment officer Eric Sprott believes the silver:gold ratio could tumble as low as 10:1. What would that mean for silver prices in 2012 and beyond?

Sprott Asset Management’s chief investment officer Eric Sprott has been one of the most vocal silver bulls in the media these days. Sprott believes that the silver:gold ratio could tumble to 20:1 or lower; perhaps as low as 10:1, according to Brian Sylvester of The Gold Report. While gold may meet strong resistance at $2,000+ per ounce, Sprott believes silver will keep climbing – and, in the process, substantially lower the silver:gold ratio.

Let’s give that prediction some historical background before looking at what it might mean for the future price of silver:

1980: The silver:gold ratio hit its all-time low driven in part by the Hunt brothers’ efforts to corner the silver market. At its peak, the ratio stood at 17:1.

2003: The current bull market in precious metals starts gaining steam with the silver:gold ratio at 83:1.

Before dismissing Sprott’s predictions off-hand, keep in mind that’s he’s not an end-of-the-world-preaching silver bug who lives in a bunker in the Canadian wilderness. He directs a vast pool of cash that’s made a big bet on the silver metal. According to some estimates, Sprott’s got $1 billion or so of client capital and his own cash invested in silver.

A big chunk of that comes from the Sprott Physical Silver Trust (NYSE:PSLV), which launched in November 2010 and now stores more than 22 million ounces of physical silver.

“When you’ve got guys like Eric Sprott and Frank Holmes [CEO and CIO of U.S. Global Investors]-guys that are really recognized as ‘thought leaders’ in the space – predicting much higher silver prices, that in itself becomes a fundamental driver for the price,” James West, editor of the Midas Letter, tells Sylvester.

Should Sprott’s bullish calls on silver prove out, and the ratio sinks to 10:1, you could expect to see silver prices at $200 an ounce or higher depending on where gold stands. Those predictions would sound foolhardy if the future of the dollar and other global currencies didn’t look so dim. So long as that picture doesn’t change, though, Sprott’s got a backer in me.

Thanks Phil. I’ll do that soon. I do think we could still see a big change in the gold-silver ratio, but it won’t happen until we really start feeling the effects of inflation. The Fed’s injected enormous amounts of capital into the economy, but money velocity hasn’t increased proportionately. It will eventually, and when that happens, inflation will begin to speed up. That’s when the broader public will start moving into the gold and silver markets.